Does the government really feel the pain?

By Lee Tuo-Tzu 李拓梓

Toward the end of last year, the Ministry of Economic Affairs said it would consider allowing Taiwanese companies to set up naphtha cracker plants in China. This angered middle and downstream firms in the petrochemical industry and prompted Kaohsiung city and county legislators to demand that the Cabinet drop the proposal.

The naphtha cracker industry has made a big contribution to the development of the nation’s heavy industry and created many jobs in central and southern Taiwan. This has alleviated the tension caused by early worries that the construction of naphtha cracker plants might harm the environment.

About 300,000 people are employed in the petrochemical peripheral industry in southern Taiwan. Mid and downstream companies in the industrial parks near the Chinese Petroleum Corp Taiwan’s third and fifth naphtha crackers are the most mature part of Taiwan’s petrochemical industry chain. Since it was decided that the fifth naphtha cracker would move, the midstream firms have frequently demanded that the government increase productivity to help the petrochemical industry access raw materials. However, they were not satisfied with the government’s proposal to improve productivity at the third naphtha cracker to offset the shortage of raw materials, and are instead hoping the government will allow the industry to invest in China.

Since he took office, President Ma Ying-jeou (馬英九) has tried to deliver on his campaign promise to sign an economic cooperation framework agreement with China. As the petrochemical industry suffers its most serious downturn in recent years, many companies have showed their support for signing such a pact. ASEAN has been their third-largest trade partner in recent years and if China were to ink a free trade agreement with ASEAN, slashed tariffs on goods would affect Southeast Asian exports for Taiwanese petrochemical products in competition with China. Taiwanese companies thus worry that their interests would be marginalized, so they aggressively demand that the government push for an economic agreement with China.

The problem is that mid and downstream petrochemical companies will move to China because of lower costs and the abundance of labor. The first impact of this on Taiwan will be the disintegration of the domestic industry chain. If mid and downstream companies moved to China, it would be pointless to upgrade the third naphtha cracker plant and build a sixth in order to increase productivity. Any companies staying in Taiwan would be forced to close because of competition from cheap Chinese goods. Under this double threat, the labor force in the petrochemical industry would become a victim of the government’s policy to encourage investment in China.

While Taiwanese firms would make money in China, workers would lose their jobs in Taiwan. Decades of government contributions to the petrochemical industry would be in vain and the social costs of upgrading the third naphtha cracker and moving the fifth naphtha cracker a waste.

Economic growth and environmental protection have been challenges facing the government when providing guidance and assistance to the petrochemical industry. In the past, the Chinese Nationalist Party (KMT) forced Kaohsiung residents to sacrifice their environment for prosperity. Now the KMT is again trying to force them to accept the repercussions of industry relocation, such as unemployment. Workers will be sacrificed while petrochemical capitalists profit. The government said it felt the public’s pain, but it will be interesting to see whether “public” refers to capitalists or workers.